*USPS: Challenging Financial Quarter Ahead

The U.S. Postal Service's acting Chief Financial Officer Richard Strasser reported yesterday that the agency had a financially dismal third-quarter during its monthly Board of Governors meeting.

Overall revenue for the USPS' third-quarter was $15.1 billion, $142 million below plan, according to Strasser. In addition, expenses were $15.1 billion or $3 million under plan, resulting in a net loss of $45 million or $139 million below plan.

Strasser also said that for the year to date, revenues of $45.6 billion are $482 million dollars below plan. Expenses of $44.7 billion are $62 million below plan, resulting in net income of $907 million or $420 million below plan.

Costs have been managed under plan, but would have been even more favorable to the bottom line if not for $390 million in unanticipated expenses in three specific areas: transportation and fuel cots, worker's compensation and cost of living adjustments, he said

"In the final quarter, aggressive measures will need to be taken to mitigate inflation, manage costs and operate at high productivity levels," Strasser said.

As for particular classes of mail, First-Class mail's revenue of $595 million continues to under run planned revenues by $285 million, while Standard A mail's revenue is rebounding after a weak performance at the end of 1999 and early 2000. Standard A mail, for example, has grown $578 million per year to date.

In other news, the Board approved funding to purchase 362 automated flat sorting machines as a replacement for the existing flat sorting equipment -- known in the industry as FSM 881s.

The new machines, AFSM 100s, are more than twice as fast as the existing FSM 881s, and as a result, will process flat mail more efficiently and reduce associated costs.

The new machines will have an on-line video coding system for real-time processing of nonreadable flat mail, which will virtually eliminate additional handling costs typically associated with optical character reader rejects on the FSM 881. This will improve customer service by allowing more flat mail to be processed on automated equipment during critical processing windows. Savings from the program are expected to near $440 million annually.

Direct marketers and magazine publishers will be particularly pleased because the machines should eventually contribute to lowering the costs of processing flat mail, which includes catalogs and magazines. In fact, one of the reasons catalog mailers are facing the possibility of a 14 percent rate increase -- and magazine publishers a 15 percent increase -- when new rates are implemented next year is because of the increased cost of processing flat mail on the old machines.

The board also approved funding to automate Business Mail Acceptance procedures by purchasing and deploying 200 Mail Evaluation, Readability, and Lookup Instruments, also known as MERLINs.

The equipment will automate mail acceptance procedures in Bulk Mail Entry Units and shorten mail verification one-to two-hours to as little as 15-minutes -- allowing the USPS to sample more mail from many more mailers while reducing acceptance time.

MERLIN machines, for example, will operate at automation speeds of 6,000 letters or 4,000 flats per hour.

Denny also said the system will provide customers with feedback to help improve mail preparation to earn worksharing discounts.

"This automated system is capable of evaluating virtually every mailing requirement for both letter and flat mail -- including many mailing characteristics for which there is no practical verification procedure today," Denny said.

The machines will first be deployed in the Southeast and Southwest parts of the US next year.